Zhitong Finance learned that since Venezuela failed to take measures in accordance with US requirements, the US will re-impose sanctions on the Venezuelan oil and gas industry. Venezuela lost a key US license to export oil to the global market and secure investment, which is expected to affect the quantity and quality of its crude oil and fuel sales.

On Wednesday, the US Treasury passed a more restrictive license requiring companies to end outstanding transactions within 45 days, particularly crude oil and fuel sales. A senior US official said that US companies investing in Venezuela will have 45 days to gradually reduce their business to avoid adding uncertainty to the global energy market.

In October of last year, the US Treasury issued a temporary authorization to allow transactions with the Venezuelan oil and gas sector, citing Venezuelan President Nicolas Maduro's promise to hold elections in 2024. Currently, senior US administration officials say the US has “completed a very careful review” and determined that the Maduro administration “failed to meet standards” in several key areas of the agreement. Therefore, the US will not renew the authorization to lift the sanctions, and the lifted sanctions will resume their effect within 45 days.

The Venezuelan opposition is currently in negotiations to select its own presidential candidate to participate in the July 28 presidential election. Previously, both primary election winners and alternate candidates were banned from registration. America's re-imposition of the most important sanctions marks a major setback in President Biden's reengagement policy with Maduro. However, the sanctions may change depending on how the elections progress in the next few months.

Supply is feared to be interrupted, and oil companies scramble to “pick up” the goods

The US side also said that it will handle specific authorization requests to do business with Venezuela. Venezuelan officials said they want the US to fulfill this promise. Many companies have waited years before Washington approves an energy deal involving Venezuela.

However, the US Treasury Department also explained that “starting new business, including new investments previously approved under license No. 44, will not be considered a gradual reduction activity,” which confuses the market about what types of transactions will be permitted. Authorizations previously granted to oil companies such as Chevron (CVX.US), Repsol, and ENI Group (E.US) have not been revoked, which ensures the flow of Venezuelan oil to the US and Europe.

The license allows the Venezuelan National Petroleum Company (PDVSA) to expand exports to pre-pandemic levels, improve cash flow, and ensure the import of thinners and fuels for its domestic market. According to another authorization, about one-fifth of Venezuela's oil exports are currently shipped from Chevron to the US, and the two companies have already begun negotiations to expand one area of their joint venture.

Venezuela's oil minister Pedro Tellechea said on Wednesday that the expansion of other projects is expected to be approved by the Venezuelan authorities before the 45-day buffer period.

In March of this year, PDVSA's oil exports climbed to about 900,000 b/d, the highest level in four years, as customers scrambled to complete purchases before the contract expired. However, shipping data shows that the backlog of tankers waiting to be loaded at Venezuelan ports has not been significantly reduced. Traders said the six-week period allowed by the US to complete the deal may not be enough to completely resolve the bottleneck, forcing some oil importers to apply for specific licenses.

Under previous licenses and separate authorizations, Venezuela's crude oil production expanded to 884,000 b/d in March, and two additional operating rigs were added. Experts say that without a license, PDVSA is expected to once again resort to “gray” intermediaries to sell oil at discounted prices, mainly to Asia, unless the US separately issues sufficient licenses.

Under the sanctions, PDVSA's finances will also be hit anew, and everything from labor to the hard currency required for procurement will be limited.

The impact of sanctions is currently limited, and international oil prices have declined

Additionally, a US government official said that new sanctions against Iranian oil may be included in the House's foreign aid plan, which could be voted on this week.

At the same time, however, there are a series of signals in the crude oil market that contradict sanctions, including from an increase in inventories to an easing of tension in the Middle East. On Wednesday, international oil prices saw their biggest drop in two months. The data showed that the global benchmark Brent crude fell below $88 per barrel after plummeting 3% on Wednesday, while WTI crude was close to $83 per barrel. U.S. crude oil inventories increased by 2.7 million barrels last week, reaching the highest level since June last year. At the same time, fuel demand indicators also declined.

Weak US inventory data overshadowed the impact of geopolitical tension in the Middle East, and traders await Israel's response to Iran's recent unprecedented attack. According to Goldman Sachs, the current premium is between 5 and 10 US dollars per barrel, and oil prices may fall if the situation does not escalate further.